Liontrust Asset Management’s (LIO) recent performance adds weight to the adage, ‘small is beautiful’. Against a backdrop of consolidation within the asset management industry, the UK-biased active manager has continued to gain new business at a rate that puts larger rivals to shame. Liontrusts’ track record of winning new funds is all the more impressive considering its bias towards retail clients. The asset manager is taking steps to diversify this client base via its recent acquisition of Alliance Trust Investments. But despite the growth and income prospects, the shares look undervalued compared with peers.
Growing new business
Trading at a discount to sector
Healthy dividend yield
Diversifying client base
Exposure to volatile retail business
Loss of institutional client
Liontrust managed to withstand volatile equity markets in 2016, at a time when other asset managers experienced net outflows. During the 12 months to March this year, it reported £482m of net inflows – nearly twice what it achieved the previous year. Some of this increase came via its acquisition of Argonaut’s European income business, which boosted retail assets by £272m, although the real benefit of the purchase was the fund's distinct investment approach and manager, Olly Russ
Liontrust has got off to a strong start this year, too. During the three months to the end of June it gained £177m in net inflows in UK retail assets – its second-highest level in more than seven years. However, this impressive result was somewhat masked by the removal of £149m of assets by one institutional client, which resulted in a 9 per cent drop in institutional assets under management to below £1bn. However, the retail wins more than offset the institutional loss with overall net inflows from the period coming in ahead of analysts' expectations at £22m. Along with investment gains of £190m, this took assets under management to £9.3bn.
The retail business Liontrust is focused on provides higher margins than institutional business, but mandates are typically shorter term and more prone to withdrawals if equity markets become tumultuous. So, despite the recent setback on the institutional side, management is trying to diversify to gain more institutional clients. To this end, its £30m acquisition of Alliance Trust Investments earlier this year not only brought £2.3bn in assets with it, but also greater exposure to institutional clients, as well as sustainable investment – an area of growing interest for this type of investor.
Liontrust invests across eight strategies, with more than half its assets under management invested in its economic advantage strategy. This involves backing companies judged to have the ability to sustain a higher-than-average level of profitability for longer than expected, typically by having intellectual property, strong distribution channels and significant recurring business. Its investment performance has been solid during recent years. During the 12 months to March it gained £978m in investment returns on its assets under management, while eight out of its 11 unit trusts were in the first or second quartile of their respective sectors since launch or since the current manager began to run the fund. Seven were top quartile.
LIONTRUST ASSET MANAGEMENT (LIO) | ||||
ORD PRICE: | 457p | MARKET VALUE: | £226m | |
TOUCH: | 455-465p | 12-MONTH HIGH: | 473p | LOW: 292p |
FORWARD DIVIDEND YIELD: | 5.3% | FORWARD PE RATIO: | 11 | |
NET ASSET VALUE: | 54p | NET CASH: | £17m |
Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2015 | 36.8 | 12.1 | 20.8 | 8 |
2016 | 44.9 | 14.5 | 25.5 | 12 |
2017 | 51.5 | 17.2 | 29.6 | 15 |
2018* | 72.5 | 23.6 | 37.1 | 21 |
2019* | 79.3 | 26.5 | 41.6 | 24 |
% change | +9 | +12 | +12 | +14 |
Normal market size: | 1,000 | |||
Matched bargain trading | ||||
Beta: | 0.52 | |||
*Numis Securities forecasts, adjusted PTP and EPS figures |